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Commercial LawNewsWorkplace Relations & SafetyTHE CONTRACT IS KING: The latest law around independent contracting arrangements

28 February 2022
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It’s one thing to call it an independent contractor arrangement — another to accurately document this by way of a written agreement.

The recent decision of the High Court of Australia in ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors [2022] HCA 2 (ZG Operations), emphasises the importance of having written independent contractor agreements in place to minimise legal exposure for you and your business.

The facts 

Mr Jamsek and Mr Whitby (the Workers) were truck drivers for ZG Operations (the Company) for around 40 years. The men were initially employees of the Company, but after 10 years and a business restructure, their employment was terminated. The men were offered ongoing work under independent contractor agreements.

The agreements, among other things, required the Workers to purchase trucks from the Company and transport goods to their customers. To give effect to the agreements, the Workers established legal partnerships, which were operative between 1986 and 2017.

After the agreements were terminated, the Workers issued proceedings in the Federal Court of Australia to recover employment entitlements, including wages, annual leave, and superannuation. The issue for determination was whether they remained ZG Operations employees after they had entered into the contractor agreements.

In the first instance, the Federal Court concluded that the Workers were independent contractors of the Company. Subsequently, they issued an appeal to the Full Federal Court (FCFCA) where the primary judgment was overturned in their favour, ruling they were employees.

ZG Operations then applied to the High Court of Australia for judicial review and had the FCFCA decision set aside.

The previous approach 

Before the High Court’s judgment, the ‘multifactorial approach’ was well-established to determine the true nature of independent contracting relationships.

The approach involved analysing the “totality of the relationship” or “substance and reality” between parties to an agreement by comparing the nature of a worker’s engagement against a range of criteria. When viewed on balance, it would indicate either a contracting or employment relationship.

For instance, factors the FCFCA relied upon in the previous proceeding, were:

  • The Workers were never engaged as drivers by third parties;
  • They worked nine-hour days, five days a week for the Company;
  • They wore Company uniforms; and
  • They had Company logos on their trucks.

Notwithstanding, the High Court rejected the FCFCA’s decision on appeal, placing more emphasis on the written contract than the appearance of the relationship.

The current position – contract not conduct  

The High Court decision has shifted the old approach, concluding that the Workers were independent contractors, and giving paramount consideration to the actual terms of the written agreement.

In reaching their decision, the High Court noted as follows:

  • The agreement was clear that the Workers were engaged as independent contractors;
  • The Workers were required to provide their own vehicle, maintain the vehicle, and cover any associated costs to insure the vehicle;
  • They were allowed to carry out work for other parties; and
  • They were required to invoice the Company for work performed.

Accordingly, the High Court has set an important precedent: where there is a written contract, less weight should be given to the actual performance of the relationship.

What does this mean for you and your business? 

The decision of the High Court has significant lessons for those engaged in independent contracting arrangements. Most critically, that the contract is king.

Moving forward, the terms of the written agreement will be the primary reference for courts seeking to determine the true nature of the engagement between parties: whether one of employment or contracting.

It is critical that parties entering into independent contracting arrangements:

  • Have a written contract in place to regulate the relationship;
  • Take care in drafting appropriate written terms;
  • Clearly articulate the intended nature of the relationship; and
  • Accurately set out the responsibilities between the parties, including in relation to payment, term of service, insurance and risk, ownership of tools and equipment, and responsibility for the payment of any applicable employment entitlements arising under law.

In general terms, failure to properly document the nature of an employment or independent contracting relationship could expose your business to legal action for mischaracterisation or misclassification, underpayment claims, or non-compliance with legal instruments like Modern Awards.

To minimise this risk, our National Workplace Relations & Safety Team at SLF Lawyers can assist you to:

  • Identify sham contracting risks in your workforce;
  • Provide you with strong and clearly-worded contracts to regulate your work arrangements; and
  • Promptly resolve disputes regarding sham contracting and the alleged underpayment of employment entitlements.

For further details, please do not hesitate to contact our team to discuss your operations today.